Tories promise road map of Canada’s foreign investment policies

OTTAWA — It’s guiding a huge chunk of foreign investment in Canada and the government’s broader economic goals, but critics assail it for being too vague and lacking necessary safeguards to protect the economy and national security.

The Investment Canada Act is steering the federal government’s decisions on major foreign takeovers that could have huge ramifications on the national economy — including China National Offshore Oil Corporation’s (CNOOC) $15.1-billion takeover bid of Calgary-based petroleum producer Nexen.

The act automatically triggers a review of large foreign investments in Canada and proposed takeovers of domestic companies to determine whether the transactions are of “net benefit” to Canada.

Critics argue the process is too secretive and the act doesn’t include a clear set of criteria to guide the federal government on whether to approve or reject large foreign investment and takeovers — especially in strategic sectors of the Canadian economy such as natural resources.

Federal opposition parties and some political observers believe that allowing state-owned CNOOC to acquire a major Canadian energy company — and a large stake in the oilsands — will set a dangerous precedent and open the floodgates to more foreign investment that could “nationalize” Canada’s natural resources.

The Conservative government maintains the Investment Canada Act fosters a strong foreign investment climate in Canada that promotes jobs and economic growth, while also shepherding a stable and transparent process for international investors.

However, Prime Minister Stephen Harper and Natural Resources Minister Joe Oliver have promised the government will release a road map governing foreign takeovers around the same time it announces its decision on the CNOOC-Nexen deal.

The new policy framework is to help investors and the public better understand the government’s position on major takeover bids and explain what’s necessary to address regulatory concerns.

But the opposition says the process must be more transparent.

“Why are the guidelines for evaluating one of the most important foreign takeovers in Canadian history being kept secret from the Canadian public?” NDP Leader Tom Mulcair said this week, attacking the government in the House of Commons.

In reviewing whether foreign investments and takeovers like the CNOOC-Nexen deal are of “net benefit” to Canada, the government will examine a number of factors, including:

– Effect on the level of economic activity in Canada, on employment, on the utilization of parts and services produced in Canada, and on exports from Canada;

– Degree of participation by Canadians in the new business and the broader industry;

– Effect of the investment on productivity, industrial efficiency, technological development and product innovation;

– Effect of the investment on competition within any industry in Canada;

– Compatibility of the investment with national industrial, economic and cultural policies; and

– Contribution of the investment to Canada’s ability to compete in world markets.

Furthermore, takeovers by state-owned enterprises such as CNOOC will see the government also examine whether the company adheres to Canadian standards of corporate governance, as well as how and the extent to which the foreign firm is owned or controlled by a state.

Industry Minister Christian Paradis said Friday the government will “consider the highest interest for Canadians” when examining CNOOC’s takeover bid and all other foreign investment.

“This will be scrutinized very closely and whatever happens will be for the best interests of Canada,” Paradis said.

Under the act, the government has 45 days to review a proposed takeover, and can extend the deadline by 30 days if necessary. Further extensions are permitted if both the investor and minister agree to it.

John Manley, a former industry minister in the Liberal government and now president of the Canadian Council of Chief Executives, said the government can use the review process to secure important guarantees from potential investors like CNOOC.

“I don’t think it should be so much about whether or not a transaction can occur,” Manley said this week.

“It’s important for the Canadian government to be very clear about what it is they want, what they want in return, not just from CNOOC, but what are the parameters in which they would be willing to see any other investments coming into Canadian resources, particularly into the oilsands, which is kind of a special resource.”

Currently, foreign investments and takeovers of Canadian firms are reviewed under the Investment Canada Act for their net benefit if the investment or business is valued at $330 million.

The federal government announced in May it would raise the threshold at which the net benefit test would take effect, increasing to $600 million in enterprise value for two years, then to $800 million for two years and then up to $1 billion.

Ottawa has also announced changes that allow the federal industry minister to publicly announce if he has rejected a proposed investment because it’s not likely to be of net benefit to Canada.

The reforms also enable the government to publicly explain its reasons for rejecting the transaction, if it doesn’t harm the Canadian business or investor.

Only two proposed foreign takeovers have been rejected since the Investment Canada Act was introduced in 1985 — both by the Conservative government amid heavy political pressure.

The first involved the proposed takeover of satellite producer MacDonald, Dettwiler and Associates Ltd.’s (MDA) space division in 2008, and the second involved Australian giant BHP Billiton Ltd.’s attempt to buy Saskatchewan’s Potash Corp. in 2010.

“For the government to have a safety lever like the net benefit clause, I think is very important and sends a message that anybody who’s investing, including China, they do have to meet certain demands and standards of what a business should look like,” said Stockwell Day, a former international trade minister in the Harper government.

“The government has to hold the final card, which is the net benefit test.”

Senior Parliament Hill reporter for the Ottawa Citizen, politics junkie, wannabe pro golfer and someone who has wordsmithed at newspapers in Ontario, Alberta and Saskatchewan. I've covered politics at... read more every level, including city hall in Ottawa and Calgary, the Alberta legislature in Edmonton and now back in Ottawa covering the Hill.View author's profile